2005 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit
12-29-2005 

# In Re: Arms trong P r e c e de nt i al or N on-P r e c e de nt i al : P r e c e de nt i al D ocke t N o . 05-1881

F o llow thi s and a dd it ion al work s at : http://d i git alc ommon s .l a w . vi ll anova . e du/thir dc ir c uit_2005

Thi s de c i sion i s br ou ght t o you for f r e e and ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i ll anova U nive r sity S choo l of L a

w Di git al Reposit ory

. It h as be e n a c c ept e d for inclusion in 2005 D e c i sion s b y an authori z e d a dmini s tr at or of V i ll anova U nive r sity S choo l of L a

w Di git al Reposit ory

. F or mor e inform at ion, p le as e c ont a ct Be n j amin . C arl s on@l a

w . vi ll anova . e du
. Re c omme nde d C it at ion

" In Re: Arm s tr on g " (2005). 2005 D e cisio n s . P ape r 3. http://d i git alc ommon s .l a

w . vi ll anova . e du/thir dc ir c uit_2005/3P RE CE DE NT I AL UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT
N o. 05- 1881
IN R E : A R M S T R O N G W O R L D IN D U S T R IE S , IN C .,

A p p e llan t

O n A p p ea l from the U n it ed S tat es D istri ct C o u rt

fo r th e D istri ct of

D elaw are ( N o. 00- 04471) D i s tr i ctJ udge: H onor abl e Eduar do C
. R obr eno

A r gued O ct ober24, 2005 B efor e: SL O V I T E R and FI SH E R , C i r cui tJ udges , and

T HOMP S ON * , D i s tr i ctJ udge ( Fi l ed: D ece m ber29, 2005)

G r egoryS. C ol eman ( A r gued) W e i l , Got s h a l & M a n g e s LLP A us t i n, T X 78759 S tep h e n K a ro tk in D ebr a A
. D andene au W e i l , Got s h a l & M a n g e s LLP N ew Y or k, N Y 10153 M ark D
. C ol l i ns R e b e c c a L . B o o th Ri c h a r d s , L a yt o n & F i n g e r , P
. A. W i l m i ngt on, D E 198992 A t t orney s forA ppel l antA r m s tr ong W or l d I ndus tr i es , I nc. M ark E
. Fel ger J eff r eyR
. W axman C ozen & O ’ C onnor W i l m i ngt on, D E 19801 St ephen J
. Shi m s hak ( A r gued) A n d rew N
. R o sen b erg C ur t i s J
. W ei dl er Pa u l , W e i s s , Ri f

k i n d , W h a r t o n & Garr i s o n LLP N ew Y or k, N Y 10019 A t t orney s forA ppel l ee O ffi ci al C om m i t t ee of U ns ecur ed C r edi t or s of A r m s tr ong W or l d I ndus tr i es , I nc. M a rla R . E sk in Ca mpb e l l & Le v i n e , LLC W i l m i ngt on, D E 19801 E l i hu I ns el buch C apl i n & D r y s dal e, C hart er ed N ew Y or k, N Y 10022 Pet erV an N
. L ockw ood N athan D
. Fi nch C apl i n & D r y s dal e, C hart er ed W as hi ngt on, D
. C
. 20005 A t t orney s for A pp el l ee O ffi ci al C om m i t t ee of A sbest os C l ai m ant s of A r m s tr ong W or l d I ndus tr i es , I nc. Jam es L
. P att o n , Jr. Shar on M
. Z i eg E dw i n J
. H arr on You n g , Con a way , St a r g a t t& Ta y l o r , LLP W i l m i ngt on, D E 19801 M i chae l J
. C r ames A nd rew A
. K res sH onor abl e A nn e E
. T h o m p so n , U n it ed S tat es D i s tr i ctJ udge * forthe D i s tr i ctof N ew J er s ey , s i t t i ng bydes i gnat i on. 3 Kay e Sc h o l e r , LLP N ew Y or k, N Y 10022 A t t orney s forA ppel l ee D ean M
. T r afe l et , L egal R ep rese n tat ive f

o r F u ture A sb esto s P erso n al Injury C l ai m ant s of A r m s tr ong W or l d I ndus tr i es , I nc.

OPI NI ON O F THE COURT T H O M PSO N , D i s tr i ctJ udge. * T hi s m att eri s befor e the C our ton A r m s tr ong W or l dw i de I ndus tr i es , I nc. ’ s ( “A W I ”) appea l of the D i s tr i ctC our t ’ s deci s i on to d e n yc o n f

ir m a tio n o f

A W I’ s b a n k ru p tc yre o rg a n iz a tio n p la n . In its d e c isio n , the D istric t C o u rt c o n c lu d e d th a t th e p lan c o u ld n o t be c o n firm ed b ec au se th e d istri b u ti o n o f w arran ts t o A W I’s equi tyi nt er es thol der s overthe obj ect i on of the cl as s of uns ecur ed cr edi t or s vi ol at ed the abs ol ut e pr i or i tyrul e, as c o d if ied in 1 1 U .S .C . § 1 1 2 9 (b )(2 )(B ). A W I f iled a tim e ly appea l , cont endi ng that( 1) the i s s uance of w arr ant s does not vi ol at e the abs ol ut e pr i or i tyrul e, and ( 2) an equi t abl e exc ept i on t o the absolut e pri ori tyrul e app l i es. F or the fo l l ow i ng reas on s, w e a f f irm th e ju d g m e n t o f

th e D istric t C o u rt. I. F ACTS AND P ROCEDURAL HI S TORY A W I desi gn s, m anu factures, and sel l s fl oo ri ng produ ct s, k itch e n a n d b a th ro o m c a b in e ts, a n d c e ili n g sy ste m s. D u e to as bes t os l i t i gat i on l i abi l i t i es , A W I and tw o of i t s s ubs i di ar i es fi l ed forC hapt er11 bankrupt cyi n the U ni t ed St at es B ankrupt cy C our tforthe D i s tr i ctof D el aw ar e on D ece m ber6, 2000. T he Un i t e d S t a t e s T ru s t e e f

o rth e Di s tr i c to f

De l a wa r e a p p o i n t e d two comm i t t ees t o r epr es entA W I ’ s uns ecur ed cr edi t or s : ( 1) the O f f icia l C o m m itt e e o f

A sb e sto s P e rso n a l In

ju ryC laim a n ts4 ( “A PI C ”) , and ( 2) the O ffi ci al C om m i t t ee of U ns ecur ed C r edi t or s ( “U C C ”)
. T he B ankrupt cyC our tappoi nt ed D ean M
. T ra f e le t a s th e F u tu re C la im a n ts ’ R e p re s e n ta tiv e (“ F C R ” ). Af t e rh o l d i n g n e g o t i a t i o n s wi th API C, UCC, a n d F CR, A W I fi l ed i t s Four th A m ended Pl an of Reor gani zat i on ( the “Pl an”) and A m ended D i s cl os ur e St at ementw i th the B ankrupt cy C o u rtin M ay2 0 0 3
. U n d er the P lan, A W I’s cred it o rs w ere d ivide d into e leve n classe s, an d A W I’s eq u ityinterest ho lders w ere p lace d into a tw elfth c lass. R elev an t t o this ap p ea l are C l as s 6, a cl as s of uns ecur ed cr edi t or s ; C l as s 7, a cl as s of pr es ent and futur e asbest os-r el at ed p ers on al i njurycl ai m ants ; and C l ass 12, the cl as s of equi tyi nt er es thol der s w ho ow n A W I ’ s comm on sto c k . (A p p . at 1 1 4 6 -4 7 , 1 1 5 1 .) T h e o n lym e m b e r o f C las s 1 2 is A r m s tr ong W or l dw i de, I nc. ( “A W W D ”) , the par entcompanyof A W I, w hich i s i n turn w ho l l yow ned byA rm strong H oldi ng s, I nc. ( “H ol di ngs ”)
. C l as s es 6 and 7 hol d equal pr i or i ty , and have i nt er es t s s eni ort o t hos e of Cl as s 12. ( A pp. at0019. ) A l l thr ee ar e i m pai r ed cl as s es beca us e thei rcl ai m s ori nt er es t s w oul d be al t er ed bythe Pl an. 11 U
. S. C
. § 1124. T h e P lan p ro v id e d th a t A W I w o u ld p lac e a p p ro x im a tely $1. 8 bi l l i on of i t s as s et s i nt o a trus tforC l as s 7 pur s uantt o 11 U .S .C . § 5 2 4 (g ). (A p p . at 1 1 4 7 -4 9 .) C las s 7 ’s m e m b e rs w o u ld be ent i t l ed t o an i ni t i al paym entper cent age f r om the trus tof 20% of thei r al l ow ed clai m s. (A pp . at11 77
. ) M eanw hil e, C l ass 6 w o u ld re c o v e r a b o u t 5 9 .5 % o f its $ 1 .6 5 1 b illio n in c la im s . (A p p . at 1 1 4 6 -4 7 .) T h e P lan w o u ld a lso iss u e n e w w a rra n ts to pur chas e A W I ’ s new comm on s t ock, es t i m at ed t o be w or th $35 t o $ 40 m i l l i on , t o A W W D or H oldi ng s ( C l ass 12). If C l ass 6 re jec ted th e P lan , the n th e P lan p ro v id e d th a t C las s 7 w o u ld recei ve the w arr ants
. (A pp . at11 49
. ) H ow ever, the P l an als o pr ovi ded thatC l as s 7 w oul d aut om at i cal l yw ai ve r ece i ptof the w arr ant s , w hi ch w oul d then be i s s ued t o A W W D orH ol di ngs (C lass 1 2 ). T he B ankrupt cyC our ts etSept ember22, 2003 as the deadl i ne forvot i ng on the Pl an and f orthe part i es t o obj ectt o the P lan ’s c o n f

irm a tio n . B e c a u se th e P lan w o u ld d istrib u te p ro p e rty t o A W I ’ s equi tyi nt er es thol der s w i thoutful l ypay i ng off theS ee ge ner al l yPatr i ck M
. H anl on, A s bes t os L egi s l at i on: 1 T h e F A IR A ct T w o Y ea rs O n , 1 P ratt ’s J. B an k r. L . 2 0 7 (20 0 5 ). A s i thappened, the FA I R A ctdi d notpas s , buts i m i l arbi l l s have been rei ntr od uced i n sub sequen tsess i o n s of C on gress . (A p p ell an t’ s B r. 1 5 ; A p p . at 12 4 3
. ) 5 uns ecur ed cr edi t or s ’ cl ai m s , al l i m pai r ed uns ecur ed cr edi t or c la s s e s w e re re q u ir e d to a p p ro v e th e P la n u n d e r 1 1 U .S .C . § 1129( a) ( 8)
. I f anyi m pai r ed cl as s obj ect ed t o the Pl an, then the Pl an coul d onl ybe “c r amm ed dow n” i f i tw as “fa i rand eq u it ab le” to the o b

jecti n g class. S ee 1 1 U
. S
. C
. § 1 1 2 9 (b)(1 ). U C C repr esent ed all of the cl asses of u nsecured credit ors, in c lu d in g C la s s 6 , d u ri n g th e n e g o tia tio n s th a t le d to th e P la n . A lth o u g h U C C in iti a llya p p ro v e d o f th e P lan in M a y2 0 0 3 , it l at erfi l ed a c ondi t i onal obj ect i on t o the Pl an’ s confi r m at i on on Sept ember22, 2003 bas ed on ( 1) the gr eat erpot ent i al di s tr i but i on t o cr edi t or s thatw oul d r es ul ti f fe der al as bes t os l egi s l at i on w as pas s ed ( namel y , the FA I R A ct ) , and ( 2) the p o ss ib le a p p lica b ili tyo f th e a b so lu te p rio rityru le, a s c o d if ied in 1 1 U .S .C . § 1 1 2 9 (b ), i f

th e P la n w a s n o t a c c e p te d b ya ll c la s s e s . A s ind icated in it s co n d it ion al objecti o n , U C C ’s r es ervat i ons aboutthe Pl an w er e pr om pt ed i n partbythe p ro p o sa l o f

th e F A IR A c t, w h ich w a s re p o rte d o u t o f th e S e n a te J udi ci aryC om m i t t ee i n J ul y2003. I f pas s ed, the FA I R A ct 1 w oul d r emove as bes t os - r el at ed per s onal i nj urycl ai m s fr om the court s and abs ol ve as bes t os defe ndant s of l i abi l i tyi n r eturn for m andat orycontr i but i ons t o a fe der al l ys upervi s ed trus t
. ( A pp. at 0017- 18. ) A W I ’ s contr i but i on t o the FA I R A cttrus tw as es t i m at ed t o r ange f

r om $520 t o $805 m i l l i on, farl es s than the $1. 8 bi l l i on i tw oul d puti n trus tforthe C l as s 7 as bes t os cl ai m ant s underthe Pl an. T hus , i f the FA I R A ctpas s ed, appr oxi m at el y$1 bi l l i on coul d be fr eed up f ordi s tr i but i on among A W I ’ s othercr edi t or s , i ncl udi ng the cl as s of uns ecur ed c re d ito rs . I n r es pons e t o U C C ’ s conce rns aboutthe FA I R A ct , the B a n k ru p tcy C o u rt e x ten d e d th e f in a l d e a d lin e f

o r v o tin g to6 O ct ob er 31, 20 03
. (A pp . at00 18
. ) To accep tthe P l an, cl ass me mb e r s h o l d i n g a tl e a s tf i f typ e r c e n to f

th e n u mb e ro f

c l a i ms a n d tw o -th ird s o f

th e a m o u n t o f

th e c laim s w o u ld n e e d to v o te forthe Pl an. See 11 U
. S. C
. § 1126( c)
. A l though 88. 03% of C l as s 6 cl ai m hol der s vot ed forthe Pl an, onl y23. 21% of the am o u n t of

the c lai m s v o ted to ac ce p t th e P lan. (A p p . at 14 5 6
. ) A s a r es ul t , C l as s 6 r ej ect ed the Pl an. C l as s es 7 and 12 ac cept ed the Pl an, butC l as s 12’ s acc ept ance w as r es ci nded underthe Pl an d u e to C la s s 6 ’s re

je c tio n . (A p p . a t 0 0 2 0 .) Fol l ow i ng a hea r i ng on N ovember17 and 18, 2003, the B ankrupt cyC our tr ecomm ended c onfi r m at i on of the Pl an t o the D i s tr i ctC our ti n i t s D ece m ber19, 2003 Pr opos ed Fi ndi ngs and C oncl us i ons . ( A pp. at1430. ) T he B ankrupt cyC our tfound that the abs ol ut e pr i or i tyrul e, as codi fi ed i n s ect i on 1129( b) ( 2) of the B an k rup tcyC o d e, w as sa ti sfied b ec au se th e w arran ts w ere di s tr i but ed t o t he hol derof equi tyi nt er es t s beca us e of the w ai ver b yCl a s s 7 , c i t i n g I n r e Ge n e s i s He a l th Ve n tu r e s , I n c . , 2 6 6 B. R. 591 ( D
. D el
. 2001) , and I n r e SPM M fg. C orp. , 984 F. 2d 1305 ( 1s tC i r . 1993)
. I n addi t i on, the B ankrupt cyC our tfound that U C C had w ai ved i t s r i ghtt o obj ectt o the Pl an w hen i t“ent er ed in to a c o n s e n s u a l p la n e n c o m p a s s in g ” th e P la n p ro v is io n s . ( A pp. at1502- 03. ) B eca us e the Pl an i ncl uded a c hannel i ng i nj unct i on unders ect i on 524( g) of the B ankrupt cyC ode, the D istri ct C o u rtw as re q u ir ed to af firm the B an k rup tcyC o u rt ’s Pr opos ed Fi ndi ngs and C oncl us i ons befor e the Pl an coul d go in to e f f e c t. ( A p p . a t 1 4 6 8 .) U C C fi l ed obj ect i ons t o the B ankrupt cyC our t ’ s Pr opos ed F ind ing s an d C o n clus ion s w ith the U n it ed S tat es D istri ct C o u rt forthe D i s tr i ctof D el aw ar e. T he D i s tr i ctC our thel d a hea r i ng on the obj ect i ons on D ece m ber15, 2004 and i s s ued a m emora ndum and or deron February23, 2005 deny i ng confi r m at i on of the Pl an. T he D i s tr i ctC our tfound that( 1) the i s s uance of w arr ant s t o the equi tyi nt er es thol der s vi ol at ed the abs ol ut e pr i or i tyrul e, and ( 2) no equi t abl e exc ept i on t o the a b s o lu te p ri o ri ty ru le a p p lie d . In re A rm s tr o n g W o rl d In d u s ., Inc
. , 3 2 0 B
. R
. 5 2 3 (D
. D el. 2 0 0 5 ). A W I n o w a p p e a ls th e D istric t C o u rt’s d e c isio n , an d is7 j oi ned byA ppel l ees A PI C and FC R , w ho j oi nt l ys ubm i t t ed a bri ef ad op t i ng and supp ort i ng A W I’ s ar gu m ents
. II. DI S CU S S I ON A
. J ur i s di ct i on T hi s C our thas j ur i s di ct i on t o hearappea l s of “a l l fi nal d e c isio n s o f

th e d istric t co u rts.” 2 8 U .S .C . § 1 2 9 1 (e m p h a sis a d d e d ); C o n n . N a t’ l B a n k v . G e rm a in , 5 0 3 U .S . 2 4 9 , 2 5 3 (1 9 9 2 ). I n bankrupt cycas es , fi nal i tyi s cons trued more br oadl ythan for othertypes of ci vi l cas es . I n r e M arvel E nt m ’ tG r oup, I nc. , 140 F. 3d 463, 470 ( 3d C i r . 1998)
. B eca us e bankrupt cypr ocee di ngs ar e oft en pr otr act ed, and t i m e and r es our ces can be w as t ed i f an appea l i s del ay ed unt i l aft era fi nal di s pos i t i on, ourpol i cyhas been t o qui ckl yr es ol ve i s s ues centr al t o the pr ogr es s of a bankrupt cy . See I n r e O w ens C orni ng, 419 F. 3d 195, 203 ( 3d C ir
. 2 0 0 5 ). W e c o n side r fo u r fa ctors to d eterm ine w h ethe r a di s tr i ctcourt ’ s deci s i on i n a bankrupt cycas e i s fi nal : ( 1) the i m pacton t he as s et s of the bankrupt cyes t at e; ( 2) the nee d for fur therfac t - fi ndi ng on r emand; ( 3) the pr ecl us i ve ef fec tof a d e c is io n o n th e m e ri ts ; a n d (4 ) t h e in te re s ts o f ju d ic ia l e c o n o m y . See i d. ( ci t i ng B uncherC o. v. O ffi ci al C om m . of U ns ecur ed C red it o rs of

G en F arm L td. P’sh ip IV , 2 2 9 F
. 3 d 2 4 5 , 2 5 0 (3d C ir
. 2 0 0 0 ))
. A l though A ppel l ee U C C cont ends thatw e ca nnothear thi s appea l beca us e i ti nvol ves an i nt er l ocut oryor derr atherthan a fi nal or der , w e fi nd j ur i s di ct i on aft ercons i der i ng the above fourfac t or s . Fi r s t , the D i s tr i ctC our t ’ s deni al of conf i r m at i on w i l l l i kel yaff

ectthe di s tr i but i on of as s et s betw een the di ffe r ent cr edi t orcl as s es . See B uncherC o. , 229 F. 3d at250. Second, the i s s ue pr es ent ed her e r equi r es no addi t i onal fac t - fi ndi ng. T hi r d, thi s appea l w oul d r equi r e us t o addr es s a di s cr et e ques t i on of l aw thatw oul d have a pr ecl us i ve ef fec ton cert ai n pr ovi s i ons of the Pl an. L as t l y , pr act i cal cons i der at i ons i n the i nt er es t s of j udi ci al economyr equi r e thatw e hea rthi s appea l now . B eca us e w e fi nd j ur i s di ct i on under28 U
. S. C
. § 1291, w e w i l l notaddr es s w hetherA cl as s is i m pai r ed i f i t s l egal , equi t abl e, orcontr actual 2 r i ght s ar e al t er ed underthe re or gani zat i on pl an. 11 U
. S. C
. § 1124. 8 w e a ls o h a v e ju ri s d ic tio n u n d e r 2 8 U .S .C . § 1 5 8 (d ). B
. St andar d of R evi ew W e r evi ew the D i s tr i ctC our t ’ s deci s i on us i ng a de novo stan d ard fo r co n clus ion s o f law , an d a c learlyerro n eo u s stan d ard forfi ndi ngs of fa ct
. I n r e PW S H ol di ng C orp. , 228 F. 3d 224, 235 ( 3d C i r . 2000)
. W hethera r eor gani zat i on pl an vi ol at es the abs ol ut e pr i or i tyrul e i s a ques t i on of l aw . See I n r e J ohns t on, 21 F
. 3 d 3 2 3 , 3 2 8 -29 (9th C ir
. 1 9 9 4 ). C
. C onfi r m at i on of a Reor gani zat i on Pl an C onfi r m at i on of a pr opos ed C hapt er11 r eor gani zat i on p l a n i s g o v e r n e d b y1 1 U. S
. C. § 1 1 2 9
. A c o u r twi l l c o n f i r m a p la n if it m e e ts a ll o f

th e re q u ir e m e n ts s e t o u t in s e c tio n 1 1 2 9 (a ). O nl yone of thes e r equi r ement s conce rns us i n thi s appea l , and th a t is th e re q u ire m e n t th a t th e p lan b e c o n se n su a l, w ith u n a n i mo u s a c c e p t a n c e b ya l l o f th e i mp a i r e d c l a s s e s . 1 1 U. S
. C. 2 § 1 1 2 9 (a )(8 ). If

th e p lan is n o t co n se n su a l, a c o u rt m a ystill confi r m as l ong as the pl an meet s the otherr equi r ement s of se c tio n 1 1 2 9 (a ), an d “ d o e s n o t d isc rim in a te u n f a irly , an d is f

a ir a n d e q u ita b le ” a s to a n yd is s e n tin g im p a ir e d c la s s . 1 1 U .S .C . § 1 1 2 9 ( b ) ( 1 ) ; s e e Ba n k o f Am
. Na t ’ l T ru s t& S a v . As s ’ n v . 2 0 3 N. L aSal l e St
. P’ s hi p, 526 U
. S. 434, 441 ( 1999) [her ei naft er L aSal l e]
. T he l att ertype of c onfi r m at i on i s al s o cal l ed a “ cr am dow n, ” as the courtcan c r am a pl an dow n overthe obj ect i on of an i m pai r ed cl as s . See gene r al l yK enneth N
. K l ee, A l l Y ou E ver W ant ed t o K now A boutC r am D ow n U nderthe N ew B ankrupt cy C o d e, 53 A m . B an k r. L
. J. 1 3 3 (19 7 9 ). 1
. T h e A b so lu te P rio rityR u le T he i s s ues i n thi s cas e r equi r e us t o exami ne the “f ai rand equi t abl e” r equi r ementfora cr am dow n, w hi ch i nvokes the abs ol ut e pr i or i tyrul e. T he abs ol ut e pr i or i tyrul e i s a j udi ci al9 i nvent i on thatpr edat ed the B ankrupt cyC ode. I tar os e fr om the conce r n t hatbeca us e a de bt orpr opos ed i t s ow n r eor gani zat i on p lan, th e p lan c o u ld b e “ too g o o d a d ea l” fo r th at de b tor’s ow ner s . L aSal l e, 526 U
. S. at444. I n i t s i ni t i al form , the ab so lute p ri o ri tyrule req u ir ed that “c red it o rs . . . b e p aid b ef o re the st ock ho l ders could r et ai n [eq uityi nter est s] for anypu rpose w hat ever . ” I d. ( quot i ng N
. Pac. R y . C o. v. B oy d, 228 U
. S. 482, 5 0 8 (19 1 3 )) ( em p h asis ad d ed ). T he abs ol ut e pr i or i tyrul e w as l at ercodi fi ed as partof the “fa i rand equi t abl e” r equi r ementof 11 U
. S. C
. § 1129( b)
. U nder the s t atut e, a pl an i s fai rand equi t abl e w i th r es pectt o an i m pai r ed, di s s ent i ng cl as s of uns ecur ed cl ai m s i f ( 1) i tpay s the cl as s ’ s cl ai m s i n ful l , ori f ( 2) i tdoes notal l ow hol der s of any j uni orcl ai m s ori nt er es t s t o r ece i ve orr et ai n anypr opertyunder th e p la n “ o n a c c o u n t o f ” s u c h c la im s o r i n te re s ts . 1 1 U .S .C . § 1129( b) ( 2) ( B ) ( i )

- ( i i ) ; L aSal l e, 526 U
. S. at441- 42. A tthe hea r tof thi s appea l i s the Pl an pr ovi s i on that di s tr i but es w arr ant s t o A W I ’ s equi tyi nt er es thol der s ( C l as s 12) th ro u g h C la s s 7 in th e e v e n t th a t C la s s 6 re je c ts th e P la n . A ppel l antA W I ar gues thatthi s pr ovi s i on does notvi ol at e the abs ol ut e pr i or i tyrul e bec aus e ( 1) l egi s l at i ve hi s t oryand hi s t or i cal cont exti ndi cat e thatthe rul e does notpr ohi bi tthe tr ans ferof w arr ant s t o the equi tyi nt er es thol der s underthe curr entci r cumst ance s ; ( 2) cas e l aw es t abl i s hes thatC l as s 7 can tr ans ferpartof i t s di s tr i but i on underthe Pl an t o another cl ai m ant ; and ( 3) the Pl an di d notgi ve the w arr ant s t o C l as s 12 “on accou nt of” i t s equityi nter est s. W e add res s each o f t hese cont ent i ons i n turn.
a . In terp re tin g th e A b so lu te P rio rityR u le F irst, A W I su g g e sts th a t th is C o u rt sh o u ld a p p lya f lex ib le i nt erpr et at i on of the abs ol ut e pr i or i tyrul e bas ed on i t s l egi s l at i ve h isto rya n d h isto ric a l co n tex t. B e c a u se th e a b so lu te p rio rityru le i s now codi fi ed as partof the B ankrupt cyC ode, w e w i l l i nt erpr et it u sin g sta n d a rd p rin c ip les o f sta tu to ryc o n stru c tio n . W e b e g in byl ooki ng atthe pl ai n l anguage of the s t atut e. See U ni t ed St at es v. R on Pai rE nt er s . , I nc. , 489 U
. S. 235, 241 ( 1989)
. I f the10 m eani ng i s pl ai n, w e w i l l m ake no f ur theri nqui ryunl es s the lit e ra l ap p lica tio n o f

th e sta tu te w ill e n d in a re su lt th a t co n f licts w i th C ongr es s ’ s i nt ent i ons . I d. at242- 43. I n s uch a c as e, the in te n tio n s o f

C o n g re s s w ill c o n tr o l. I d
. A W I c o n ten d s th a t ap p lica tio n o f th e a b so lu te p rio rity ru le w o u ld b e c o n tra ryto C o n g re ss ’s in ten tio n s b e c a u se th e ru le w a s d e sig n e d to p re v e n t th e “ ‘sq u e e z in g o u t’ [ o f ] in ter m e d iate uns ecur ed cr edi t or s . ” See I n r e W abas h V al l eyPow erA s s ’ n, 72 F. 3d 1305, 1314 ( 7th C i r . 1995) ( ci t i ng N
. Pac. R y . C o. , 228 U
. S. 482) ( emphasi s added)
. A W I s uppor t s i t s cl ai m w i th fl oor sta tem e n ts b yR e p re se n tativ e D o n E d w a rd s a n d S e n a to r D e n n is D eC onci ni , keyl egi s l at or s of the B ankrupt cyC ode. See B egi er v. I
. R
. S. , 496 U
. S. 53, 64 n. 5 ( 1990) ( cons i der i ng thes e r emar ks as “persuasi ve ev i den ce of con gress i on al i ntent ”). T hese s t at ement s i ndi cat e that“a s eni orcl as s w i l l notbe abl e t o gi ve up value t o a juni or cl ass over the d i ssentof an i nterven i ng cl ass unl es s the i nt erveni ng cl as s r ece i ves the ful l amount , as oppos ed t o val ue, of i t s cl ai m s ori nt er es t s . ” 124 C ong. R ec. 32, 408 & 34, 007 ( 1978) ( r emar ks of R ep. E dw ar ds on Sept
. 28, 1978 and r e m a r k s o f

S e n . D e C o n c i n i o n O c t
. 5 , 1 9 7 8 , r e s p e c t i v e l y) ( emphasi s added)
. A W I ar gues thatthi s l anguage demonstr at es thatthe abs ol ut e pr i or i tyrul e w as notm eantt o appl yt o the s i tuat i on befor e us beca us e C l as s 6 i s notan i nt erveni ng ( or interm ed iat e) c lass, an d is no t bein g sq u ee ze d o u t byC lass 7 ’s tr ans ferof w arr ant s t o C l as s 12 underthe Pl an. T he abs ol ut e pr i or i tyrul e, as codi fi ed, ens ur es that“the hol derof anycl ai m ori nt er es tthati s j uni ort o the cl ai m s of [a n i m pai r ed di s s ent i ng] cl as s w i l l notr ece i ve orr et ai n underthe pl an on ac countof s uch j uni orcl ai m ori nt er es tanypr operty . ” 1 1 U .S .C . § 1 1 2 9 (b )(2 )(B )(ii). T h e p lain lan g u a g e o f th e sta tu te m akes i tcl earthata pl an ca nnotgi ve pr opertyt o j uni or c laim a n ts o v e r th e o b

jec tio n o f

a m o re se n io r c las s th a t is i m pai r ed, butdoes noti ndi cat e thatthe obj ect i ng cl as s m us tbe an int erveni ng cl ass. W e fi nd thatthe pl ai n m eani ng of the s t atut e does not c o n f l i c twi th Co n g r e s s ’ s i n t e n t
. T h e l e g i s l a t i v e h i s t o rys h o ws thats ect i on 1129( b) w as atl eas tdes i gned t o addr es s “gi ve- up”11 situ a tio n s w h e re a se n io r c las s g a v e p ro p e rtyto a c las s ju n io r to the d issen ti n g class. O ther statem en ts i n the leg isl ati v e h ist o ry o f se cti o n 1 1 2 9 (b), ho w ev er, ap p ea r t o ap p lythe s tatu te m o re b ro a d ly . F o r e x a m p le, th e H o u se R e p o rt f o r H .R . 8 2 0 0 , the b ill thatw as eventual l yenac t ed, s t at es thats ect i on 1129( b) “codi fi es the abs ol ut e pr i or i tyrul e fr om the di s s ent i ng cl as s on dow n. ” H
. R
. R ep. N o. 95- 595, at413 ( 1978) , r epr i nt ed i n 1978 U
. S. C
. C
. A
. N
. 5963, 6369. D es pi t e amendm ent s t o the or i gi nal ver s i on of H
. R
. 8200, the H ous e R eporthas been c ons i der ed an a u th o ri ta tiv e s o u rc e o f

le g is la tiv e h is to ry f

o r s e c tio n 1 1 2 9 (b ). See 124 C ong. R ec. 32, 408 & 34, 007 ( 1978) ( r emar ks of R ep. E dw ar ds on Sept
. 28, 1978 and r emar ks of Sen. D eC onci ni on O ct
. 5, 1978, r es pect i vel y ) ( “[T] he H ous e r eportr emai ns an ac cu rate d esc ri p ti o n o f c o n firm ati o n o f se cti o n 1 1 2 9 (b).”). In addi t i on, the fl oors t at ement s of R epr es ent at i ve Edw ar ds and Senat orD eC onci ni do notrul e outthe pos s i bi l i tythatan i m pai r ed cl as s m ayobj ectt o a co- equal cl as s ’ s di s tr i but i on of p rop ertyto a ju n ior class. S ee id. ( “A s lon g as se n ior cred it o rs h a v e n o tb e e n p a i d mo r e th a n i n f u l l , a n d c l a s s e s o f

e q u a l c l a i ms ar e bei ng tr eat ed s o t hatthe di s s ent i ng cl as s of i m pai r ed uns ecur ed cl ai m s i s notbei ng di s cr i m i nat ed aga i ns tunfai r l y , the p l a n ma yb e c o n f

i r me d i f th e i mp a i r e d c l a s s o f

u n s e c u r e d c l a i ms r ece i ves l es s than 100 ce nt s on the dol l ar( ornothi ng atal l ) as l ong as no cl as s j uni ort o the di s s ent i ng cl as s r ece i ves anythi ng atal l
. ”)
. A s a r es ul t , w e w i l l appl ythe pl ai n m eani ng of the s t atut e. U nderthi s r eadi ng, the s t atut e w oul d be vi ol at ed beca us e the Pl an w oul d gi ve pr opertyt o C l as s 12, w hi ch has cl ai m s j uni ort o t hos e of Cl as s 6. T hi s fi ndi ng does notend our c o n sid e ra tio n o f

th is a p p e a l, as A W I m a k e s f u rth e r a rg u m e n ts r egar di ng exce pt i ons t o the abs ol ut e pr i or i tyrul e. b. T ransfer s of B ank rupt cyD i stri bu t i on s B etw ee n C red it o rs an d E q u ityInteres t H o lders Second, A W I cont ends thatC l as s 7 m aydi s tr i but e the pr opertyi tw i l l r ece i ve underthe Pl an t o C l as s 12 w i thout vi ol at i ng the abs ol ut e pr i or i tyrul e. A W I der i ves thi s r es ul tfr om a p p lica tio n o f

th e so -c a lled “ M C o rp -G e n e sis ” ru le, w h ich is b a se d o n a lin e o f

c a se s w h e re c re d ito rs w e re a llo w e d to di s tr i but e thei rpr ocee ds fr om the bankrupt cyes t at e t o other12 cl ai m ant s w i thoutoffe ndi ng s ect i on 1129( b)
. See SPM , 984 F
. 2 d 1 3 0 5 (pe rm itti n g sen ior sec u red cre d it o rs t o sh are b a n k ru p tcy pr o c e e d s w ith ju n io r u n se c u re d c re d ito rs w h ile sk ipp ing o v er p ri o ri tytax c red it o rs i n a C h ap ter 7 li q u idation ); G enes i s H eal th, 266 B
. R
. at602, 617- 18 ( al l ow i ng s eni or s ecur ed l ender s t o ( 1) gi ve up a port i on of thei rpr ocee ds under the r eor gani zat i on pl an t o hol der s of uns ecur ed and s ubor di nat ed c laim s, w ith o u t in c lu d in g h o ld e rs o f p u n iti v e d a m a g e s c laim s in the arr angement , and ( 2) al l ocat e partof thei rval ue underthe pl an t o the debt or ’ s offi cer s and di r ect or s as an empl oym ent i ncent i ve pac kage) ; I n r e M C orp Fi n. , I nc. , 160 B
. R
. 941, 948 (S .D . T e x . 1 9 9 3 ) (p e rm itt in g se n io r u n se c u re d b o n d h o ld e rs to all o ca te pa rto f th eir clai m to f u n d a se tt lem en t w ith the F D IC o v er the o b

jecti o n o f th e jun ior su b o rdin ated b o n d h o lders). T he D i s tr i ctC our tr ej ect ed thi s ar gum ent , and found that the M C orp- G enes i s l i ne of c as es w as di s t i ngui s habl e. I tbegan i t s anal y s i s w i th SPM , a Fi r s tC i r cui topi ni on ci t ed byboth the M C orp and G enes i s H eal th court s t o s uppor tthe l egal i tyof the d is tr ib u tio n s c h e m e s p re s e n te d to th e m . S P M , 9 8 4 F .2 d 1 3 0 5
. T h e D istric t C o u rt d if

f e re n tiate d S P M f

ro m th e c u rre n t ca se in thr ee w ay s : ( 1) SPM i nvol ved a di s tr i but i on underC hapt er7, w hi ch di d nottr i gger11 U
. S. C
. § 1129( b) ( 2) ( B ) ( i i ) ; ( 2) the s eni orcr edi t orhad a pe r fec t ed s ecur i tyi nt er es t , m eani ng thatthe pr opertyw as nots ubj ectt o di s tr i but i on underthe B ankrupt cy C ode’ s pr i or i tys cheme; and ( 3) the di s tr i but i on w as a “c arve o u t,” a situ a tio n w h e re a p a rtyw h o se c laim is s e c u re d b ya ss e ts in th e b a n k ru p tcy es tate a llo w s a p o rtio n o f its lien p ro c e e d s to b e p a id to o th e rs. A rm stro n g , 3 2 0 B .R . at 5 3 9 ; se e g e n e ra lly R i char d B
. L evi n, A l m os tA l l Y ou E verW ant ed t o K now A bout C a rv e O u t, 76 A m . B a n k r. L .J. 4 4 5 (2 0 0 2 ). S im ilarly , G e n e sis H eal th i nvol ved pr opertys ubj ectt o the s eni orcr edi t or s ’ l i ens thatw as “ca r ved out ” forthe j uni orcl ai m ant s . A r m s tr ong, 320 B
. R
. at 53 9
. In a d d it ion , the D istri ct C o u rtfo u n d M C o rp di s t i ngui s habl e on i t s fac t s beca us e the s eni oruns ecur ed cr edi t or tr a n s f e rr e d f u n d s to th e F D IC to s e ttle p re -p e titio n litig a tio n . Id
. W e adoptthe D i s tr i ctC our t ’ s r eadi ng of thes e ca s es , and agr ee thattheydo nots t and forthe uncondi t i onal pr opos i t i on th a t cr e d ito rs a re g e n e ra llyf re e to d o w h a tev e r th e yw ish w ith13 the bankrupt cypr ocee ds theyr ece i ve. C r edi t or s m us tal s o be gui ded bythe s t atut orypr ohi bi t i ons of the abs ol ut e pr i or i tyrul e, as codi fi ed i n 11 U
. S. C
. § 1129( b) ( 2) ( B )
. U nderthe pl an at i s s ue her e, an uns ecur ed cr edi t orcl as s w oul d r ece i ve and a u to m a tica llytra n sf

e r w a rra n ts to th e h o ld e r o f e q u ityin ter e sts in th e e v e n t th a t its c o -e q u a l c la s s re je c ts th e re o rg a n iz a tio n p la n . W e c o n c lu d e th a t th e a b so lu te p rio rityru le a p p lies a n d is vi ol at ed bythi s di s tr i but i on s cheme. I n addi t i on, the s tructur e of the Pl an makes pl ai n thatthe tr ans ferbetw een Cl as s 7 and C l as s 12 w as devi s ed t o ens ur e that C lass 1 2 rec eive d the w arran ts, w ith o r w ith o u t C lass 6 ’s c o n se n t. T h e d istrib u tio n o f th e w a rra n ts w a s o n lym a d e to C l ass 7 i f C l ass 6 r ej ect ed the Plan. In turn, C l ass 7 aut om at i cal l yw ai ved the w arr ant s i n favorof C l as s 12, w i thout a n ym e a n s f

o r d is s e n tin g m e m b e rs o f C la s s 7 to p ro te s t. A l l ow i ng thi s part i cul artype of tr ans ferw oul d encour age pa r t i es t o i m perm i s s i bl ys i des t ep the ca r eful l ycr aft ed s tr i ctur es of the B a n k ru p tcy C o d e , an d w o u ld u n d e rm in e C o n g re ss ’s in ten tio n to gi ve uns ecur ed cr edi t or s bar gai ni ng pow eri n thi s cont ext
. See H. R. Re p . No
. 9 5
- 5 9 5 , a t4 1 6 , r e p r i n t e d i n 1 9 7 8 U. S
. C. C. A. N. 5 9 6 3 , 6 3 7 2 (“ [ S e c tio n 1 1 2 9 (b )(2 )(B )(ii)] g iv e s in ter m e d iate cr edi t or s a gr eatdeal of l ever age i n negot i at i ng w i th s eni oror se c u re d c re d ito rs w h o w ish to h a v e a p lan th a t g iv e s v a lu e to e q u ity.” ).

c. O n A ccountof T hi r d, A W I ar gues thatthe w arr ant s w oul d notbe di s tr i but ed t o C l as s 12 on acc ountof thei requi tyi nt er es t s , but ra th e r w o u ld b e g iv e n a s c o n sid e ra tio n f o r se ttl e m e n t o f

th e ir i nt er companycl ai m s . U C C di s put es the exi s t ence of anys uch s ett l ement , al l egi ng thats uch an a rr angements houl d have be en br oughtt o the att ent i on of the B ankrupt cyC our t
. I n r es pons e, A W I i n d icates tha t th e se tt lem en t w as d etail ed in the P lan’s D i s cl os ur e St at ement , w hi ch the B ankrupt cyC our tappr oved on J une 2, 2003. ( A ppel l ee’ s B r . 4. ) T he r el evantpor t i on of the D isc lo su re S tate m e n t re a d s a s f o llo w s: I n th e o r d i n a r yc o u r s e o f b u s i n e s s , s u c h i n t e r c o mp a n yc l a i ms14 hav e be e n r e c or de d o n the bo ok s a nd r e c or ds of H ol di ng s, A W W D and A W I , and, as s um i ng thatal l s uch i nt er company c laim s a re v a lid , the n e t in ter c o m p a n yc laim so re c o rd e d is in fa v o r of H o lding s in the ap p rox im ate am o u n t o f $ 1 2 m il li o n . In cons i der at i on of, among ot herthi ngs , A W I ’ s agr eementu n d er the Pl an t o fund the r easona bl e fe es and expe ns es as s oci at ed w i th the H ol di ngs Pl an of Li qui dat i on, the tr eatm entof H ol di ngs , A W W D , and thei rr es pect i ve off i cer s and di r ect or s as PI Pr ot ect ed Parti es underthe A s bes t os PI Per m anent C hannel i ng I nj unct i on, the si m ul t aneous r el eas e by A W I of any cl ai m s ( know n and unknow n) A W I has agai ns t H ol ding s and A W W D , and the i s s uance of the N ew W arr ant s t o A W W D , and to a v o id p o ten tiallyp ro tra c ted a n d c o m p lica ted p ro c e e d in g s to det erm i ne the exa ct amount s , natur e and s t atus underthe Pl an of al l s uch cl ai m s and t o fac i l i t at e the ex p edi t i ous cons um m at i on of the Pl an and the compl et ion o f H ol di ngs ’ w i ndi ng up, H ol di ngs and A W W D w il l, eff ect i ve upon and s ubj ectt o the occurr ence of the Effec t i ve D at e, r el eas e al l s uch i nt er company cl ai m s ( know n and unknow n) agai ns t A W I or any of A W I’s su b sidiari es[
. ] (A p p . a t 1 1 3 8 ) ( e m p h a s is a d d e d ). A s s t at ed ea r l i er , s ect i on 1129( b) ( 2) ( B ) ( i i ) pr ovi des that h o ld e rs o f

ju n io r c laim s o r in ter e sts “ w ill n o t re c e iv e o r re tain [anypr operty ] underthe pl an on ac countof s uch j uni orcl ai m or interest. ” 1 1 U
. S
. C
. § 1 1 2 9 (b)(2 )(B )(i i) (em p h asis ad d ed ). In L aSal l e, the Supr eme C our ti nt erpr et ed “on a ccountof” t o m ean “bec aus e of, ” ora “c aus al r el at i ons hi p betw een hol di ng the pr i or c l a i m ori nt e r e s ta nd r e c e i vi ng a nd r e t a i ni ng pr op e r ty . ” 52 6 U. S. at450- 51. A l though t he Supr eme C our tdi d notdeci de w hat degr ee of

caus at i on w oul d be nec es s ary , i t s di s cus s i on on that t opi c r evea l ed thatthe abs ol ut e pr i or i tyrul e, as codi fi ed, w as not i n fac tabs ol ut e. Fi r s t , i ti ndi cat ed thatthe “on a ccountof” l ang uag e w ou l d b e redun dan ti f sect i on 11 29 (b) w as r ead as a cat egor i cal pr ohi bi t i on agai ns ttr ans fer s t o pr i orequi ty . I d. at 452- 53. Second, i tnot ed thata “l es s abs ol ut e pr ohi bi t i on” ste m m in g f

ro m th e “ o n a c c o u n t o f

lan g u a g e ” w o u ld “ re c o n c ile the tw o r ecogni zed pol i ci es under l y i ng C hapt er11, of pr es ervi ng goi ng conce r ns and maxi m i zi ng pr opertyavai l abl e t o s at i s fyB eca us e A W I does notas s ertanyar gum en t reg ardi ng a 3 new value excep t i on t o the absolut e pri ori tyrul e, w e do no tadd res s thati s s ue. 15 cr edi t or s . ” I d. at453- 54. I n keepi ng w i th thes e obs ervat i ons , w e not ed i n PW S t hat the “on a ccountof” l anguage “conf i r m s thatther e ar e s om e ca s es i n w hi ch pr opertycan tr ans fert o j uni ori nt er es t s not‘ on acc ount of’ thos e i nt er es t s butforotherr eas ons . ” 228 F. 3d at238 (discu ssing L aS all e, 52 6 U
. S
. at 45 1 -52 ). In P W S , the d eb tors re lea se d th e ir leg a l cla im s a g a in st v a rio u s p a rties to f a c ili tate th e ir re o rg a n iza tio n , inc lu d in g a n a v o id a n c e c laim th a t w o u ld have a l l ow ed them t o avoi d cert ai n as pect s of a pr evi ous r ecapi t al i zat i on. I d. at232- 35. T he appe l l ant s i n PW S ar gued thatr el eas i ng the avoi dance cl ai m r es ul t ed i n a pr ohi bi t ed tr ans ferof val ue t o equi tyi nt er es thol der s w ho had part i ci pat ed i n the r ecapi t al i zat i on. W e hel d that“w i thoutdi r ectevi dence of caus at i on, r el eas i ng pot ent i al cl ai m s agai ns tj uni orequi tydoes notvi ol at e the abs ol ut e pr i or i tyrul e i n the part i cul ar c irc u m sta n c e [ w h e re ] th e c laim s a re o f o n lym a rg in a l v iab ili ty and coul d be cos t l yforthe r eor gani zed e nt i tyt o pur s ue. ” I d. at 2 4 2
. A W I w oul d anal ogi ze A W W D and H ol di ngs ’ s r el eas e of i nt er companycl ai m s i n excha nge forw arr ant s t o the r el eas e of claim s in P W S
. W e d isag ree . A cc o rdin g to the D iscl o su re 3 St at ement , the w arr ant s have a n es t i m at ed val ue of $35 t o $40 mi l l i o n . ( Ap p . a t1 1 5 7
. ) I n c o n tr a s t , th e i n t e r c o mp a n yc l a i ms w er e val ued atappr oxi m at el y$12 m i l l i on. T hi s s ett l ement w oul d amount t o a s ubs t ant i al benef i tforC l as s 12, es peci al l yas the w arr ant s w er e onl ypartof the cons i der at i on forw hi ch the i nt er companycl ai m s w er e r el eas ed. A m ong otherthi ngs , the i nt er companycl ai m s w er e al s o os t ens i bl yr el eas ed i n excha nge for the si m ult aneo us rel ease of an ycl ai m s byA W I agai nst A W W D orH ol di ngs and fa ci l i t at i on of the r eor gani zat i on pr oces s . ( A pp. at1138. ) A W I gi ves no adequa t e expl anat i on for thi s di ffe r ence i n val ue, l eadi ng us t o concl ude thatA W W D or H ol di ngs ( C l as s 12) w oul d r ece i ve the w arr ant s on acc ountof16 thei rs t atus as equi tyi nt er es thol der s . See LaSal l e, 526 U
. S. at 456. D
. E q u ity 1. A ppl i cabi l i tyof Penn C entr al A p p e llan t A W I f

u rth e r c o n ten d s th a t th is C o u rt sh o u ld appl yequi t abl e cons i der at i ons t o al l ow an exc ept i on t o the ab so lute p ri o ri tyrule. Itfin d s su ch an ex ce p ti o n in the ca se o f In re P en n C en tr al T ran sp o rt ati o n C o . , 5 9 6 F
. 2 d 1 1 2 7 , 1 1 4 2 (3d C ir
. 1979) , and poi nt s t o l anguage i n N orw es tB ank W or thi ngt on v. A hl er s , 485 U
. S. 197 ( 1988) , thati ndi cat es thatexce pt i ons t o the abs ol ut e pr i or i tyrul e mayi ndeed e xi s t
. See i d. at206 ( s t at i ng thatthe ena ctm entof s ect i on 1129( b) “bar [s ] anyexpans i on of anyexce pt i on t o the abs ol ut e pr i or i tyrul e bey ond that rec o g n ized ” in p re-1 9 7 8 B an k rup tcyC o d e c ase s). Penn C entr al i nvol ved a “ m onum ent al [r eor gani zat i on] pl an des i gned t o r es ol ve w hat[atthe t i m e w as ] the mostcompl ex s e t o f in te rr e la te d a n d c o n f

lic tin g c la im s e v e r a d d re s s e d u n d e r . .

. the B ankrupt cyA ct
. ” 596 F. 2d at1129. Penn C entr al T r ans por t at i on C om pany , w hi ch w as form ed i n 1968 bythe m er gerof the Penns y l vani a R ai l r oad C om panyand the N ew Y or k C entr al R ai l r oad C om pany , fi l ed a pe t i t i on for re o rg a n iz a tio n u n d e r t h e B a n k ru p tc yC o d e in 1 9 7 0 . Id . a t 1 1 3 3
. T hereaft er, t o p reventa rai l transport at i on cri si s and to add res s the part i cul ardi ffi cul t i es of thatr eor gani zat i on, C ongr es s pas s ed the R egi onal R ai l R eor gani zat i on A ctof 1973, w hi ch di r ect ed th a t m a jo r p o rtio n s o f

P e n n C e n tra l’s ra il as se ts b e c o n v e y e d to C onr ai l , a new companyform ed underthe A ctt o cont i nue oper at i on of s om e of the r out es s erved byPenn C entr al
. I d. at 1134. I n l i ghtof thes e exc ept i onal ci r cumst ance s , w e found that “[o] urcons truct i on and appl i cat i on of pr ece dent s s uch as the abs ol ut e pr i or i tyrul e mustnece s s ar i l yt ake a ccountof the uni que fa cts o f th is Plan an d p roc ee d in an en v ir o n m en t perv ad ed m o re b yre la tiv ity th a n b ya b s o lu te s .” Id . a t 1 1 4 2
. A W I arg u es th at th e f

ac ts of the c ase b ef

o re u s are sim ilarlyu n iq u e , an d a lso w a rra n t a m o re e q u itab le a n d f lex ib le17 ap p li ca ti o n o f th e a b so lute p ri o ri tyrule. (A p p ell an t’ s B r. 3 6
. ) A m ong the fa ct s thatA W I fi nds uni que ar e: ( 1) the i nvol vement o f U C C in the n eg o ti ati o n an d d raf ti n g o f th e P lan; (2) U C C ’s endor s ementof the Pl an, as i ndi cat ed byi t s s i gnatur e on the coverl ett eracc om pany i ng the di s cl os ur e s t at ement ; ( 3) the l ack of a ne gat i ve ef

fec ton C l as s 6’ s di s tr i but i on fr om the gr ant i ng of w a rra n ts to C las s 7 ; (4 ) th e re lativ e lysm a ll v a lu e o f th e w a rra n ts compar ed t o t he ent i r e bankrupt cyes t at e; ( 5) the ac cept ance of the Pl an bythe maj or i tyi n num berof U C C ’ s cons t i tuent s ; and (6 ) th e d e lay ca u se d b yU C C ’s o b jec tio n , w h ich w a s p rim a rily l odged i n ant i ci pat i on of the pas s age of the FA I R A ct
. W e do n o t f in d th e se f

a c ts to b e a s c o m p e lli n g a s th o se th a t led u s to ap p lya m o re f

lexib le ab so lute p ri o ri tyrule in th e p ast. A W I’s bankrupt cydue t o as bes t os l i abi l i t i es s i m pl ydoes noti nvol ve the k ind o f e x igen t ci rcu m stan ce s p rese n t i n P en n C en tr al, w h ere C o n g re ss in ter v e n e d in th e re o rg a n iza tio n p ro c e ss to a v o id a ra il tra n sp o rta tio n c risis o f

n a tio n a l im p o rt. In a d d iti o n , o u r a p p lica tio n o f e q u itab le c o n sid e ra tio n s in Penn C entr al di d notm ean thatthe abs ol ut e pr i or i tyrul e w as a b a n d o n e d . R a th e r, w e h e ld f irm to th e id e a th a t th e ru le s til l “r equi r ed .
. . thatpr ovi s i on be made fors at i s fac t i on of s eni or c la im s p ri o r t o s a tis f

a c tio n o f ju n io r c la im s .” Id . a t 1 1 5 3
. 2. J udi ci al E s t oppel A W I al s o ar gues thatU C C w ai ved i t s r i ghtt o obj ectt o the P l an b ecause o f i t s cond uct duri ng the reorganizat i on process, s peci fi cal l yr efe r r i ng t o U C C ’ s r ol e i n s hapi ng the Pl an, i t s i ni t i al e n d o rse m e n t o f

th e P lan , an d th e n its su b se q u e n t o b jec tio n s to the Pl an bas ed on the pos s i bl e pas s age of the FA I R A ct
. T he Ba n k ru p t c yCo u r ta g r e e d wi th th i s a r g u me n ta n d f o u n d th a tUCC w ai ved i t s r i ghtt o obj ectt o the Pl an bec aus e i t s behavi orw as “t oo s harp even f

ora bankrupt cycas e. ” ( A pp. at1503- 04. ) T he D istric t C o u rt to o k a d if f e re n t v iew , n o tin g th a t [e] ven i f the U ns ecur ed C r edi t or s change d thei r m i nds bas ed on pol i ti ca l c al cul us t hatthe FA I R A ctw oul d be pas s ed, thi s w as thei rpr erogat i ve. I n the abs ence of bad f ai th, w hi ch w as not al l eged he r e, and part i cul ar l yi n l i g h t of the cha nged18 c irc u m sta n c e s , u n til a p a rtyc o n se n ts a n d th e c o n se n t is f in a l, thatpartym ayw al k aw ayfr om the t ab le f o r a good orbad re a so n o r n o re a so n a t all. A rm stro n g , 3 2 0 B .R . at 5 3 4 n .2 4 (c iti n g In re H u c k a b e e A u to C o . , 3 3 B
. R
. 1 4 1 , 1 4 9 (B an k r. M
. D
. G a. 19 8 1 )). W e agr ee w i th t he D i s tr i ctC our t , butr eca s tthe i s s ue of w ai veras an i s s ue of j udi ci al es t oppel
. J udi ci al es t oppel can be appl i ed w hen a pa r tyas s ert s a ce r t ai n pos i t i on i n a l egal pr ocee di ng and pr evai l s , onl yt o as s erta contr arypos i t i on l at er on beca us e of c hanged i nt er es t s . See N ew H ampshi r e v. M ai ne, 532 U
. S. 742, 749- 51 ( 2001)
. I t s purpos e i s t o pr ot ectthe ju d icia l p ro c e ss b yp re v e n tin g p a rties f ro m “ d e lib e ra tely changi ng pos i t i ons acc or di ng t o the exi genci es of the mom ent
. ” I d. at750 ( quot i ng U ni t ed St at es v. M cC as key , 9 F. 3d 368, 378 (5 th C ir. 1 9 9 3 )). In d e c id in g w h e th e r to a p p lyju d icia l es to p p e l, a c o u rtco n side rs va ri o u s fa ctors, i n clud ing w h ethe r th e p arty ’s pos i t i on i s cl ear l yi ncons i s t entw i th i t s ear l i erpos i t i on and w h e th e r th e p a rtyc h a n g in g p o sitio n w o u ld g a in a n u n f a ir advant age ove rthe oppos i ng party . I d. at750- 51. U C C cl ear l ychange d i t s pos i t i on w hen i tl odged a condi t i onal obj ect i on t o the Pl an af t eri thad endor s ed the d isc lo su re sta tem e n t an d re c o m m e n d e d a c c e p tan c e o f th e P lan to i t s cons t i tuent s . T he conf i r m at i on pr oces s , how ever , ent i t l ed U C C t o l odge an obj ect i on agai ns tthe Pl an bef or e the obj ect i on deadl i ne. See 11 U
. S. C
. § 1129( a) ( 8)
. W e r ecogni ze thatan obj ect i on bas ed on s pecul at i on thatl egi s l at i on w i l l be pas s ed ca n be ca us e forconce r n. See EE O C v. B ethl ehem St eel C orp. , 727 F. Supp. 952, 955 & n. 1 ( E
. D
. Pa. 1990) ( comm ent i ng on the pr obl ems thats t em from del ay i ng j udgm entbeca us e of pe ndi ng l egi s l at i on)
. U C C ’ s obj ect i on, how ever , w as notbas ed s ol el yon the i m pactof the pendi ng FA I R A ct , butw as al s o bas ed on a v io la tio n o f

s e c tio n 1 1 2 9 (b ). Fur therm or e, U C C ’ s change i n pos i t i on coul d notbe en ti relyp rejud ici al t o A W I be ca u se th e P lan a n d it s d iscl o su re s t at ementw er e condi t i oned on the appr oval of al l i m pai r ed cl as s es . I n fac t , C l as s 6, one of U C C ’ s cons t i tuent s , di d not19 acc eptthe Pl an. W hi l e the vot i ng out come of C l as s 6 r ai s es the tr oubl i ng pos s i bi l i tythata s m al l num berof hol d- out s ow ni ng a l ar ge per cent age of

cl ai m s w er e ca us i ng cos t l ydel ayi n the r eor gani zat i on pr oces s , thi s i s cont empl at ed bythe B ankrupt cy C ode, w hi ch r equi r es atl eas ta maj or i tyvot e forthe numberof claim s an d a su p erm ajorityv o te fo r th e a m o u n t of claim s fo r a cl as s t o acc epta pl an. See 11 U
. S. C
. § 1126( c)
. I n cons i der at i on of thes e fa ct or s , w e w i l l notappl yj udi ci al es t oppel t o s i l ence U C C ’s o b

jec tio n m e re lyb e c a u se it w a s a n a c tiv e p a rticip a n t in the reorganizat i on process. III
. CO NC L US I ON W e r ecogni ze thatthe l ongerthatthe r eor gani zat i on pr oces s t akes , the l es s l i kel ythatthe purpos es of C hapt er11 ( pr es ervi ng the bus i nes s as a goi ng conce rn and maxi m i zi ng the a m o u n t th a t c a n b e p a id to c re d ito rs ) w ill b e f u lf ille d
. N everthel es s , w e conc l ude thatthe abs ol ut e pr i or i tyrul e appl i es in this ca se. W e w il l acc o rdin g lyaf firm the D istri ct C o u rt ’s deci s i on t o denyconfi r m at i on of A W I ’ s Pl an.